The federal government has proposed a new digital dispute-resolution framework in the Finance Bill 2026, introducing Section 134B into the Income Tax Ordinance, 2001. The provision establishes an algorithm-driven settlement mechanism that would allow taxpayers to resolve certain tax proceedings through system-generated offers before a formal assessment order is issued.
How the mechanism works
Under the proposed section, the Federal Board of Revenue (FBR) may present a settlement offer at any stage prior to the issuance of an assessment or amended assessment order under sections 121, 122, or 122E.
The offer is intended to encourage taxpayers to voluntarily revise their returns and settle identified discrepancies through the IRIS portal.
The system-generated settlement amount would be calculated using several factors, including:
- The stage of proceedings at which the offer is made.
- The taxpayer’s compliance history maintained in FBR records.
- The nature of the discrepancy, such as valuation disputes, legal interpretation issues, unexplained income or assets, or concealment.
- Any additional criteria considered necessary to ensure revenue adequacy and equitable treatment.
Ten-day acceptance window
Taxpayers who choose to accept a settlement offer would be required to complete three steps within ten days:
Accept electronically:
Accept the offer through the IRIS portal.
Deposit the settlement amount:
Pay the amount specified in the offer.
File a revised return:
Submit a revised income tax return reflecting the settled amount.
Legal effects of settlement
Once the revised return is filed and the settlement amount is deposited, the proceedings relating to the settled issues would stand abated. This includes matters arising from audit notices under section 177, unexplained income proceedings under section 111, and certain assessment notices under section 122.
Relief from penalties
Related amendments in section 114 provide that taxpayers settling through this mechanism would not be required to pay separate penalties or default surcharges.
No prior approval needed
The revised return submitted under the settlement process would not require the Commissioner’s approval.
Scope remains limited
The proposed law clarifies that acceptance of a settlement offer would apply only to the specific discrepancies covered by that offer. Tax authorities would still be able to pursue other issues not included in the settlement, and the arrangement would not affect proceedings relating to other tax years.
Part of a broader digital tax reform
Section 134B forms part of the government’s wider effort to create a faceless and technology-driven tax administration. Similar algorithmic settlement provisions have also been proposed for sales tax under section 47AA and for federal excise duty under section 7A.
